Cryptocurrency Price Correlations

Cryptocurrency repeatedly moved in tandem during specific periods. A great example is the altcoins, the price of which went up after the SEC’s decision on March 10, while a month earlier alternative cryptocurrencies significantly lost their positions.

However, in other cases, the loss of bitcoin has led to the altcoins price increase. One of the critical factors for such scenario has become an essential incident in the cryptocurrency space. For example, the rise and fall of DAO and the refusal of the SEC in a register the exchange-traded Fund (ETF) of Winklevoss brothers also played in favor of the alternative cryptocurrencies.

The Ethereum increased in cost more than 200% during the week after the announcement of the SEC.

Before the SEC’s decision, the bitcoin price briefly rose above $1,300 per coin, breaking all previous records. After the failure of the SEC, the cryptocurrency price fell by about 30%, while altcoins have risen sharply in price – many of them peaked for all time of its existence. The Ethereum, for example, increased in cost more than 200% during the week after the announcement of the SEC. The similar situation was with Monero and Dash – courses of these altcoins increased more than 100% due to denial of SEC.

But how do the price of different cryptocurrencies changes, if we consider not the specific event, but an extended period?

BTC and LTC: Bobbsey twins

The most objective way to study the price relationship between the bitcoin and other cryptocurrencies is the analysis of existing statistics. Using this information, market researchers can make satisfactory conclusions about altcoin market. For example, to understand how some cryptocurrencies interact, it is enough to look at the three months data. And it is often enough to assess the relationship of cryptocurrency pairs.

An excellent example of this analysis is BTC/LTC – prices for these cryptocurrencies in the last three months of 2013 reflect the position of the previous 18 months when the correlation of this pair exceeded 0.7 and nine months when it reached 0.8. Such strong and positive relationship between the cryptocurrency is easy to explain, especially when litecoin in some way – "spin-off" of bitcoin, it uses the same technology and design approaches.

However, BTC and LTC courses don’t always correlate with each other. The analyst at ARK Investment Management, Chris Burniske, notes that cryptocurrencies move in different directions during SEC’s decision anticipation.

Bitcoin and XRP: Completely different

Another example of cryptocurrency pair that shows a stable relationship - BTC/XRP. Their correlation was below 0.2 in each quarter of 2015 and 2016. Moreover, if you just average all the available data about the prices of these cryptocurrencies, it becomes clear that 0.2 is the average result of price correlation BTC/XRP for all time of these cryptocurrencies existence on the exchanges.

It is because the two cryptocurrencies are very different from each other, as noted by trader Jacob Eliosoff – only in this way we can explain their weak interdependence. Bitcoin and Litecoin had competitive offers and aimed at an audience different from XRP.

Bitcoin and ETH: Precarious relations

It is not enough to understand the relationship between other cryptocurrency pairs by simply using the analysis of quarterly data. We have to wrap up in statistics more.

For example, if we take the figures for one quarter, then BTC/ETH pair shows a modest correlation at the level of 0.57. However, if we consider a shorter period, e.g., one week, the picture becomes more interesting – the correlation reaches 0.98 for several short periods of time. For example, during the week from August 1 to August 7 in 2016 the relationship between prices of BTC/ETH was above 0.9.

However, the correlation of these cryptocurrencies hasn’t always been so high, from time to time showing deficient numbers. For example, during the week of August and October 2015, their correlation reached 0.04.

ETC, XMR: Time to time

The Ethereum Classik is another cryptocurrency that joins with a bitcoin price on a variety of communication. Sometimes their correlation was only 0.004, and sometimes – 0.96, according to CryptoCompare from July 2016. BTC/ETC pair shows a strong relationship at the beginning of this year – it was more than 0.9 during a week in January. However, with the same success, its connection got weaker, below 0.1, and continued to fall, reaching a factor of 0.004 in January 2017.

The story of BTC/XMR pair is similar to the situation of BTC/ETH and BTC/ETC. If we observe a relationship between prices for seven-day periods, we can see that the correlation reaches 0.9, and then it falls to 0. For example, a stable relationship was noticeable in January of this year when the ratio reached 0.94. And in February, the rate was below 0.2.

These two cryptocurrencies are very different from each other. While Bitcoin still cannot determine the scaling, Monero is more focused on the security of his investors. Bitcoin was created to ensure the user privacy, and it didn’t meet the stated anonymity and made the identity of their investors disclosed. Monero gives the investors better protection, suggesting ring signatures and hidden addresses. Because of this, XMR gained popularity in the DarkNet.

Conclusion

Cryptocurrency pairs discussed in this material have a reasonably dynamic relationship. Sometimes they move in tandem, and sometimes in opposite directions. The cryptocurrency space becomes more developed when some of the digital assets involved in the formation of this market may show progress, for example, occupying a narrow niche that will eventually lead to the trends in their pricing. If these cryptocurrencies stand out and attract the traders' attention, their relationship with bitcoin over time can significantly become weaker.